Hedge funds outpace major U.S. equity indices in February

For the month of February, hedge funds outpaced the performance of major indices, rising 0.3%, according to the PivotalPath Composite Index, while the S&P 500 dropped 3.0% and the Nasdaq slid 3.4% in the same month.

Preqin is seeing strong hedge fund returns as well. Its All-Strategies Hedge Fund benchmark returned 3.43% in February, building on January’s 2.03% gain and bringing the 12-month return to almost 26%.

The composite 12-month beta to the S&P through February was 0.16, data provider PivotalPath said.

By strategy, managed futures and global macro led all strategies in February, generating 2.2% and 1.3% respectively. The equity sector turned in the worst performance, largely from losses in the technology, media, and telecom and healthcare sub-strategies.

Smaller funds appeared to have an edge on larger funds last month, with the $500M-$1B AUM firms clocking in the best gains, up 0.45%. Funds with more than $5B in AUM slipped 0.8% in the same month.

The value-over-growth shift continued to gain traction in February, with the PivotalPath proprietary Cyclical Sectors Basket outperforming the Growth Sector Basket by 4.2%.

“Multi-strategy, Managed Futures, Global Macro, and Credit were positive for the month and continue to generate top of class alpha,” the firm said. “Commodities, especially oil, reached fresh highs not seen in a decade which, along with continued volatility, benefited Global Macro and Managed Futures funds who caught the right side of the trade.”

In addition, the hedge fund space has been attracting more players. Quant technologies provider SigTech said new fund launches remain strong, with almost 2,000 new funds per year, on average, since 2019. Of the 5,500 new hedge funds started since 2019, 70% are based in the U.S., 9% in the U.K. and 5.2% in China.

“The robust level of new hedge fund launches reflects a sustained strong demand from investors for innovative and uncorrelated investment strategies to meet return expectations in an increasingly challenging market environment,” said Daniel Leveau, vice president, Investor Solutions, at SigTech.

Crypto is gaining traction as a hedge fund strategy. In 2021, some 171 crypto hedge funds were launched bringing the strategy’s total to 774. Of those, 80% are domiciled in the U.S.

Note that some more traditional investment firms are forming businesses that give investors access to hedge-fund-like strategies. Case in point: Fidelity Investment has started a liquid alternatives unit.

Take a look at the YTD performance of ETFs intended to mimic hedge-fund performance: GURU, ALFA, QAI, HDG.